There is no question that customer loyalty programs are on the rise. And for some very good reasons! In a recent Experian Data Quality survey, 75% of companies with a customer loyalty program in place are seeing a positive ROI from their efforts. Another indicator, from a survey conducted by Forrester Consulting, is that 64% of retailers state that their consumer loyalty program is their best method of connecting with their customers.

But how do you measure the effectiveness of a customer loyalty program? It’s good to say major retailers who do have a loyalty platform in place are showing more profitability than those who don’t, but how can you quantify and measure the overall effectiveness of having a loyalty program in place?

The first step is to define a loyal customer. Why is that important? Because knowing what a loyal customer is, and which customers are the most loyal to your company, provides you with the ability to act on that information. This adds a very important component to your overall marketing effort.

A loyal customer can be defined as:

  • One that would unequivocally recommend your products/services to others (like friends, family, colleagues, etc.)
  • One that will continue buying your products as long as they have a need
  • One that would consider buying other products or services that you have to offer
  • One that is not looking for other sources for your products
  • One that would communicate with you if there is a problem

Now that the loyal customer has been described, it’s time to look at ways to measure those customer loyalty metrics and how they can help your marketing programs.

 

The most effective metrics to measure Customer Loyalty

Net Promoter Score

The first metric to measure is called the Net Promoter Score, or NPS. It’s an indicator of how likely, or unlikely, a customer is to refer you to his or her friends, family or others. It’s an important one for two reasons: first, it’s a simple metric to measure; and second, when a customer recommends a product, they’re putting their own reputation on the line – not just yours.

The way it works is a customer rates you from 1 – 10; the lower the score, the less likely they are to recommend your product or service. The scores fall into 3 categories:

Detractors – have a score of 0-6, and are usually unhappy with your brand and can cause problems by posting negative comments on social media or word of mouth

Passives – have a score of 7-8, and may or may not recommend your product or service to others. They’re not negative towards your brand, but they’re not jumping up and down, either.

Promoters – have a score of 9-10, and are extremely likely to recommend and promote your product/service. They are your repeat customers, and use various means to let others know just how happy they are.

By using these scores, you’ll get a glimpse of how your company is doing. By the same token, it can show you what may need to be improved, or if something is really wrong, how it can be fixed. It helps build relationships, because you’re not only reaching out to your customers, you’re also listening to their concerns. Finally, it can also help your employees get motivated, because they’re seeing actual feedback on the job they’re doing.

 

Repurchase Ratio

Another key metric is the repurchase ratio, which measurers the ratio of repeat purchases against a one-time purchase. This can be one of the top indicators of customer loyalty and company growth. It’s a way to measure the amount an existing customer spends and how much that amount can increase or decrease based on additional purchases – either within or across your product offerings.

Generally, you ask a question like, “how likely are you to (continue) (increase) your purchases from our company?” If the answers show “highly likely,” then your repurchase ratio will probably be positive. It’s a way to measure your customers’ loyalty to your company.

To actually calculate this, you divide the number of customers who bought more than once in a 365-day period, by the total number of customers. This gives you the repeat purchase ratio (repurchase ratio). It’s an important number – because knowing your repeat purchase customers are extremely profitable, and are more likely to make another purchase.

 

Upselling Ratio

This ratio tracks more than one type of product, divided by the customers who have only purchased one product. It’s all about multiple products being bought by one customer, and indicates a satisfied customer because they made a different purchase.

 

Customer Loyalty Index

This provides more information than the Net Promoter Score (NPS), but incorporates information from the NPS along with the repurchasing and upselling ratios. It uses a questionnaire with a six-point scale, where 1 is “definitely yes” and 6 is “definitely no.”

You ask three questions, including: how likely are you to recommend us?; how likely are you to buy from us again?; and how likely are you to try our other products/services?” The Customer Loyalty Index is the average score of the 3 responses. Some argue that this approach asks for the customer’s actual intention, rather than measuring their actual buying behaviors. But it does utilize all the loyalty values that you’ve collected, and you’re able to track changes over time.

 

How Much Would You Miss Us?

This question is an alternative to the NPS score, asking your customers how much they’d miss you if you closed your doors. It uses a scoring system like the NPS, asking customers to rank you from 1 (won’t miss you at all) to 10 (would miss you very much). It is designed to measure the strength of your customer connections. If you sell something many other companies sell, your customers probably won’t miss you if you went away.

 

Customer Engagement Numbers

This is considered the most effective predictor of customer loyalty, according to Curtis Bingham. He claims it’s an effective indicator of loyalty and profitability. Bingham states that loyalty is a result of a customer having positive interactions and experiences with a product or service – emotions that can’t be damaged by competition.

Customer engagement helps to encourage repurchasing, promote referrals to the customers’ friends and family and lowers any sensitivity to pricing. It’s an important area to monitor.

 

 

Looking for some more Customer Loyalty tips? Check out our article on the best practices we’ve learnt from 6 years in the market!

Stay tuned to our blog for more tips and recommendations! And if you have any questions at all about your loyalty platform, please don’t hesitate to reach out or set up a call through this link now!

 

 

 

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Johnny Reyes
PM & UX/UI Specialist
Product management
CategoriesUncategorized

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